# Question

a. Suppose that you want to borrow a widget beginning in December of Year 0 and ending in March of Year 1. What payment will be required to make the transaction fair to both parties?

b. Suppose that you want to borrow a widget beginning in December of Year 0 and ending in September of Year 1. What payment will be required to make the transaction fair to both parties?

b. Suppose that you want to borrow a widget beginning in December of Year 0 and ending in September of Year 1. What payment will be required to make the transaction fair to both parties?

## Answer to relevant Questions

a. Suppose the March Year 1 forward price were $3.10. Describe two different transactions you could use to undertake arbitrage. b. Suppose the September Year 1 forward price fell to $2.70 and subsequent forward prices fell ...Suppose you are the counterparty for a lender who enters into an FRA to hedge the lending rate on $10m for a 90-day loan commencing on day 270. What positions in zero-coupon bonds would you use to hedge the risk on the FRA? Consider the bonds in Example 7.8. What hedge ratio would have exactly hedged the portfolio if interest rates had decreased by 25 basis points? Increased by 25 basis points? Repeat assuming a 50-basis-point change. Suppose you observe the following effective annual zero-coupon bond yields: 0.030 (1-year), 0.035 (2-year), 0.040 (3-year), 0.045 (4-year), 0.050 (5-year). For each maturity year compute the zero-coupon bond prices, ...Using the zero-coupon bond prices and natural gas swap prices in Table 8.9, what are gas forward prices for each of the 8 quarters?Post your question

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